Publications

Climate scientists warn against the possible consequences of anthropogenic climate change. Rising average temperatures make extreme weather, including draughts and floods, more likely; rising sea levels threaten populations in coastal regions. An international political agreement was to limit global warming to an average of 2°C until 2100; this was tightened to 1.5°C at the Climate Change Conference in Paris. It is questionable, however, whether the climate targets will be met. Considering today’s prospects, it is about time to not only cut emissions but to also discuss ways of dealing with the consequences of climate change.

Beyond emissions trading systems, markets play an important role in this regard: they can make it significantly easier to adapt to climate change. Price signals hint at necessary adjustments, international trade opportunities make changes in production structures less painful, developed financial markets help handling risk. Moreover, market economies promote prosperity, which facilitates the use of resources and technology in an effort to cope with the effects of climate change.

In the ten years since the first iteration of the European Stability Mechanism (ESM) emerged, its status has changed markedly. Initially, it was just a clever example of financial engineering deployed by the ECB to enable certain EU member states to be bailed out without imposing the costs directly on the better off countries of Europe.

A new type of virus is holding the world in suspense by evoking images of the worst Hollywoodian nightmares. It is known that it spread out of Wuhan, the capital of Hubei province, China, and then quickly propagated throughout mainland China, at least for the moment. The mortality rate of this new type of coronavirus is reported to be at about 2%. This esteem might be however highly imprecise. First, because the real number of people infected is not known. Some independent institutions presume that it could be much higher than the statistics reported by the official authorities. Second, because it needs time for the mortality rate to approach its steady state value, as most people are still ill, and it is not possible to know exactly how many of them will recover.

Some time ago, the story of Martin Shkreli, an entrepreneur who made the news as a candidate for “the most hated man in America” (thus the BBC), caused a stir: he bought the intellectual property rights needed to produce a life-saving anti-AIDS drug, and immediately afterwards raised the price by 5,000%.
Beyond the merits of the affair, what caused the most stir was the unapologetic attitude of this businessman, who did not care about the criticism of moralists and defended his right to maximize profits for himself and the investors of his hedge fund in a contemptuous manner.

As shown in Peter Higgins’ book “Immigration Justice”, two distinct positions dominate the immigration debate. The nationalist position assumes that states should favor the interests of their own citizens over those of foreigners. By contrast, the cosmopolitan position claims that residents are entitled to no privileges.

A few weeks ago, the bodies of 39 people were found in a lorry trailer in Essex. They were Vietnamese migrants, including eight women, three boys and twenty-eight men. The eldest victim was 44, the youngest 15. This was just one in a series of dreadful events that have occurred in Europe over the last few years. A long chain of desperation and hope that has produced nearly 10 thousand deaths in the Mediterranean Sea over the period 2016-2018.

WP 2020-01.

Sir Donald Brydon, former Chairman of the London Stock Exchange, published just before Christmas his wide-ranging review of the UK audit industry. This is likely to have significant ramifications for bank financial reporting throughout Europe because (with only a few national opt outs) accounting and auditing rules set in London form the basis of the relevant European Union (EU) directives.

The recently updated European Markets in Financial Instruments Directive, commonly abbreviated as MiFID II, is supposed to enhance consumers’ protection. Adjustments of regulatory background questions aside, the EU aims to improve “protection of investors by prohibiting the acceptance of commissions, protecting independent consulting, introducing new regulations regarding product monitoring”. This intention seems laudable, especially given the presence of some black sheep among investment advisors. However, a well-meaning policy is not necessarily also good for consumers. While the providers of financial services now legally safeguard themselves using elaborate documentation, clients do not necessarily receive better guidance. In fact, extensive documentation could possibly scare customers off.

Cost-benefit analysis is far from being a perfect tool. In particular, the subjective nature of costs and benefits makes all calculations arbitrary. Thus, it may happen that policymakers take bad decisions even when applying the best methodology. Yet, the world of politics requires that decisions be taken, and I believe that cost benefits analysis can still be helpful (and better than groping).